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Business Energy Tax Credit / Residential Tax Credits

With the signing of the Alternative Energy Bill of 2005, new opportunities were opened for millions of Americans to lessen their dependency on traditional supplies of fossil fuels and electricity.

Never before has it been so affordable to make the investment in energy conservation and production for one's own home or business.
Below is a breakout of the Federal tax credits (note: these are true "Credits" against tax liability, rather than just a "deduction" which just lowered the amount of income that could be taxed.)

Incentive Type: Corporate Tax Credit
Eligible Renewable/Other Technologies: Solar Water Heat, Solar Space Heat, Solar Thermal Electric, Solar Thermal Process Heat, Photovoltaics, Geothermal Electric, Fuel Cells, Solar Hybrid Lighting, Direct Use Geothermal, Microturbines
Applicable Sectors: Commercial, Industrial
Amount: Currently 10% for geothermal electric and solar; from January 1, 2006 until December 31, 2007, the credit is 30% for solar, solar hybrid lighting, and fuel cells, and 10% for microturbines. The geothermal credit remains at 10%.
Maximum Incentive: $550 per 0.5 kW for fuel cells; $200/kW for microturbines; no maximum specified for other technologies
Eligible System Size: Microturbines less than 2 MW; fuel cells at least 0.5 kW
Authority 1: 26 USC § 48
Authority 2: Energy Policy Act of 2005 (Section 1336 - 1337)
Date Enacted: 8/8/2005
Effective Date: 1/1/2006
Expiration Date: 12/31/2007

  A 10% federal energy tax credit is currently available to businesses that invest in or purchase solar or geothermal energy property in the United States. The Energy Policy Act of 2005 (H.R. 6) expands the credit to fuel cells and microturbines installed in 2006 and 2007 and to hybrid solar lighting systems installed on or after January 1, 2006.  
For eligible equipment installed from January 1, 2006 through 2007, the credit is set at 30% of expenditures for solar technologies, fuel cells, and solar hybrid lighting; microturbines are eligible for a 10% credit during this two-year period. For equipment installed on or after January 1, 2008, the tax credit for solar energy property and solar hybrid lighting reverts to 10% and expires for fuel cells and microturbines. The geothermal credit remains unchanged -- at 10%.  
The credit for fuel cells is capped at $550 per 0.5 kW of capacity. The maximum microturbine credit is $200 per kW of capacity. No maximum is specified for the other technologies.  
Solar energy property includes equipment that uses solar energy to generate electricity, to heat or cool (or provide hot water for use in) a structure, or to provide solar process heat. Hybrid solar lighting systems are those that use solar energy to illuminate the inside of a structure using fiber-optic distributed sunlight. Geothermal energy property includes equipment used to produce, distribute, or use energy derived from a geothermal deposit. It does NOT include geothermal heat pumps. For electricity produced by geothermal power, equipment qualifies only up to, but not including, the electrical transmission stage. Energy property does not include public utility property, passive solar systems, pool heating, or equipment used to generate steam for industrial or commercial processes.  
To qualify, the original use of the equipment must begin with the taxpayer or it must be constructed by the taxpayer. The equipment must also meet any performance and quality standards in effect at the time the equipment is acquired. The energy property must be operational in the year in which the credit is first taken.  
If the project is financed in whole or in part by subsidized energy financing or by tax-exempt private activity bonds, the basis on which the credit is calculated must be reduced. (The formula is described in the tax credit instructions.) Subsidized energy financing means "financing provided under a federal, state, or local program, a principal purpose of which is to provide subsidized financing for projects designed to conserve or produce energy." Therefore, a business must reduce the basis for calculating the credit by the amount of any such incentives received.  
Taxpayers can not claim both this business energy tax credit and the credit allowed under 26 USC §45 (Renewable Energy Production Tax Credit) for the taxable year or any prior taxable year.

Residential Tax Credits
Solar Photovoltaic and Hot Water Systems
The new provision also offers tax credits to individuals for residential solar energy systems.

For solar hot water systems, the allowable tax credit is 30% of the qualified solar system expenditures up to a maximum tax credit limitation of $2,000.
For solar photovoltaic (PV) systems, the allowable tax credit is 30% of the qualified PV system expenditures up to a maximum tax credit limitation of $2,000.
To be eligible for the solar hot water system tax credit, the system must be certified by the Solar Rating and Certification Corporation (SRCC) and produce 50% or more of the hot water needed by the residence. There is no qualification provided for PV systems. Individuals may claim tax credits for either or both types of solar systems.

The incentives apply to equipment placed in service during 2006-2008.

There are new Massachusetts Tax Credits for 2006. The tax credit is 15% for residential systems with a maximum $1000.00 credit. Click for a pdf file with the MA Schedule EC Form.

There are also Federal Tax Credits of 30% for residential systems with a maximum $2000.00 credit. Click for a pdf file to download IRS Residential Energy Credits Form 5695.